In his book The New Evolution Diet, Paleolithic lifestyle pioneer Art DeVany calls humans lazy over-eaters. “We humans evolved when food was scarce and life was full of arduous physical activity. Hence, our bodies instruct us to eat everything we can lay our hands on and to exert ourselves as little as possible.” Because of the environment our ancestors evolved in, humans are genetically programmed to take the easy route whenever possible.

Proponents of socialism are experts at preying on this human weakness. Vladimir Lenin claimed, “The socialist state can only arise as a net of producing and consuming communes, which conscientiously record their production and consumption, go about their labour economically, uninterruptedly raise their labour productivity and thus attain the possibility of lowering the working day to seven or six hours or even lower.” Humans are instinctively drawn to promises of greater wealth for less, or no, work.

But history exposes this farce. Economist Gary Galles recounts the horrors of early socialist American colonies, “In Jamestown, colonists were indentured servants whose first seven years’ output was to go into a common pool. In Plymouth, all accumulated wealth was to be held in common, against colonists’ objections…. In both places, the fruits of people’s efforts went to others, with disastrous results. Sixty-six of Jamestown’s initial 104 colonists died within six months, most from famine. Only 60 out of 500 arrivals two years later survived that long. The consequences of this ‘starving time’ included cannibalism. Plymouth’s first colonists fared little better, with only about half surviving six months. Some, in desperation, sold their clothes and blankets to, or became servants of, Indians.”

Galles describes how socialism reduced the colonists to a primitive state, driven by instinct, not reason. “Shirking was so severe at Jamestown that Thomas Dale noted that much of the survivors’ time was devoted to playing rather than working, despite the threat of starvation.”

The colonies were saved by adopting free markets. “In Jamestown, each man was given three acres of land, in exchange for a lump-sum tax of two and a half barrels of corn, and communal work was limited to one month (not during planting or harvest). In addition to creating private property, this made the marginal tax rate on most of colonists’ efforts zero, turning indolence into industry. Rather than starving, they became exporters of corn to the Indians.” In Plymouth, “The change from communal- to private-property rights dramatically increased the Pilgrims’ productivity. The beginnings of that productivity led to the bounty celebrated at Plymouth’s famous 1623 Thanksgiving. And as historian Russell Kirk reported, “never again were the Pilgrims short of food.””

The history of socialism is unimaginable mass murder, starvation, torture and imprisonment. Advocates tiptoe through the mass grave of socialist history, conveniently avoiding the hundreds of millions of corpses, in hopes of cherry-picking a case that will appeal to baser human instincts. Unfortunately for the advocates, rational analysis of these examples invariably illustrates their ignorance of both economics and history. This isn’t because socialist advocates are stupid or bad messengers. The reason no socialist makes a rational case for socialism is socialism prohibits rational economic calculation.

Economic Calculation

In 1920 Ludwig von Mises, the dean of the Austrian School of Economics at that time, delivered the most devastating argument against socialism to date. In his essay entitled “Economic Calculation in the Socialist Commonwealth”, Mises explained that because the value of goods can only be determined through exchange, it’s impossible to perform economic calculation in a socialist society. Mises defines socialism this way, “Under socialism all the means of production are the property of the community.” The community appoints an agent, the state, to manage all production. But since the state owns all production goods, there can be no exchange. There can be no prices. Therefore it’s impossible for its agents to rationally calculate the value of any production good.

The implications are profound. Without prices, accounting is impossible. Rational economic analysis is impossible. There is no rational means to measure whether an activity is worthwhile or not, nor to allocate resources between activities.

Mises explains, “Without economic calculation there can be no economy. Hence, in a socialist state wherein the pursuit of economic calculation is impossible, there can be–in our sense of the term–no economy whatsoever. In trivial and secondary matters rational conduct might still be possible, but in general it would be impossible to speak of rational production any more. There would be no means of determining what was rational, and hence it is obvious that production could never be directed by economic considerations.”

“For a time the remembrance of the experiences gained in a competitive economy, which has obtained for some thousands of years, may provide a check to the complete collapse of the art of economy. The older methods of procedure might be retained not because of their rationality but because they appear to be hallowed by tradition. Actually, they would meanwhile have become irrational, as no longer comporting with the new conditions.” Mises’s 1920 prediction of how production in a socialist society would evolve presciently describes the blighted landscape of primitive factories exposed after the Iron Curtain fell. Mises also predicts the ubiquitous shortages we now know are endemic to all socialist countries.

But Mises’s most profound observation is about rational behavior itself. “Rational conduct would be divorced from the very ground which is its proper domain. Would there, in fact, be any such thing as rational conduct at all, or, indeed, such a thing as rationality and logic in thought itself? Historically, human rationality is a development of economic life. Could it then obtain when divorced therefrom?” Here Mises explains the starvation of early American colonists. Prevented from performing economic calculation and isolated from any economy with prices to emulate, the colonists were stripped of their ability to make rational decisions. Thus they played instead of working. Starvation and cannibalism followed. Only when they adopted markets and were able to perform economic calculation could they become civilized and prosperous again. Even if a socialist society was ruled by super-benevolent super-geniuses, the inability to make rational economic decisions would doom it.

The Worst Rise to the Top

Of course there are no benevolent geniuses in government. As Lord Acton observed, “Power tends to corrupt, and absolute power corrupts absolutely.” Since the socialist society has abolished ownership and voluntary exchange of production goods, the only way to allocate them is through violence. Land and capital must be appropriated from private owners through violence, and labor must be allocated under threat of violence backed by violence.

As Mises proved, the allocation of production resources can only be arbitrary and chaotic. Ubiquitous shortages of consumer goods cause chaos and death. Those in power must promote a strongman to protect themselves from the people. In his famous book, The Road to Serfdom, Nobel Prize winning economist F.A. Hayek explained why the worst rise to the top of the socialist state, “Advancement within a totalitarian group or party depends largely on a willingness to do immoral things. The principle that the end justifies the means, which in individualist ethics is regarded as the denial of all morals, in collectivist ethics becomes necessarily the supreme rule.”

Because socialist governments cannot meet the variety of demands of individuals, the strongman must appeal to the baser instincts of the masses. He must identify a bogeyman and motivate the masses against that bogeyman to maintain power. Hayek predicts the war, mass murder and secret police common to socialist states.

Socialism also corrupts bureaucrats because since they cannot rationally allocate production goods, they tend to allocate them for the good of themselves and their cronies.

Soft Socialism

It was obvious by 1920 that full socialism destroyed civilizations, so socialists adopted soft socialism. Lenin launched the New Economic Policy, Mussolini spawned fascism, and Hitler implemented National Socialism. Today people use the terms corporatism or crony capitalism. The defining characteristic of soft socialism is government control of the means of production through regulation while allowing nominal ownership of property similar to a capitalist system. Contrary to what socialists claim, this is not capitalism because the state controls all production through regulation.

The advantage of soft socialism is entrepreneurs can perform economic calculation. The price mechanism guides allocation of resources so the economy provides goods, albeit inefficiently, to consumers. All western countries implement soft socialism to some degree.

The problems of full socialism remain in proportion to how extensively the state interferes in the economy. Every regulation strengthens state control of production, increases the cost of production, and distorts prices and economic calculation. Regulations force producers with low margins out of business which reduces competition and further distorts prices. This causes mis-allocation of resources resulting in lower quality goods and higher prices for consumers. The greater the regulations, the worse the mis-allocation of resources and the fewer the producers. Ultimately giant corporate agents of the state dominate all markets.

Because one side of every transaction is money, states create central banks to cartelize banks and monopolize the production of money. The state empowers bankers to create money out of thin air, loan it out, and earn interest. If banks suffer losses, the central bank prints money to bail them out. In return, the banks buy government debt. Every time the central bank prints money, it transfers wealth from those who didn’t receive the new money to those who did.

Governments still cannot perform economic calculation because they don’t engage in voluntary exchange. That corrupts bureaucrats. The worst still rise to the top. As a result, states and their corporate agents enrich those in power by looting those who are not. The laws of economics dictate it can never be any other way.

Decades of massive socialist inflation, regulation, institutionalized theft and corruption, especially in the US, caused the economic crisis of 2008 and the recession that still plagues the world, but proponents of socialism always call for more socialism to correct the problems caused by the current level of socialism.

The Myth of Good Socialist Governments

Socialist advocates often point to Canada as an example of a good socialist country because they fail to understand why the Canadians are doing relatively well. The major reason is Canadians dramatically reduced government spending and regulation during the 1990s. Economist David Lee recounts, “Under the joint leadership of Prime Minister Jean Chretien and Finance Minister Paul Martin, Canada underwent one of the most fiscally responsible periods in its history. … Following a peak deficit of $42 billion in fiscal 1993–1994, the administration managed to reverse the deficit and produce a surplus by 1997–1998, and sustain the surplus over the following two years before posting a historical record of $17.1 billion in budgetary surplus in fiscal 2000–2001.”

Socialist advocates typically ignore the ubiquitous shortages produced by socialized medicine in Canada. Economist Thomas DiLorenzo informs, “All countries that have adopted socialized healthcare have suffered from the disease of price-control-induced shortages. If a Canadian, for instance, suffers third-degree burns in an automobile crash and is in need of reconstructive plastic surgery, the average waiting time for treatment is more than 19 weeks, or nearly five months. The waiting time for orthopaedic surgery is also almost five months; for neurosurgery it’s three full months; and it is even more than a month for heart surgery (see The Fraser Institute publication, Waiting Your Turn: Hospital Waiting Lists in Canada). That’s why so many Canadians come to the US for medical care.

Proponents of socialism also frequently point to Sweden as an example of a socialist paradise, but the reality is similar to Canada. Reason magazine reports, “[Economist Andreas] Bergh says that despite popular mythology, Sweden is not a socialist success story but instead owes its economic growth to the lowered tax rates and deregulation of the early 1990s, which allowed innovation and investment to flourish. Bergh also … warns that Americans who are hoping to emulate Swedish success by growing the public sector are learning the wrong lessons from Sweden.”

Economist Per Bylund adds, “Since the mid-1990′s Sweden has had only balanced budgets and even reduced the national debt from just over 80% to under 40% of GDP. The welfare system has also, slowly and step by step so that people would not notice the change, been restructured through adding incentives for people to choose productive labor instead of welfare checks. Many welfare programs have also been changed from the previous never-ending subsidization of laziness to provide limited time only support while adjusting to changes in the market.” It’s ironic that as Swedes and Canadians benefit from moving toward capitalism, socialists point to those countries as models for socialism.

Why Not Capitalism?

Socialism is government control of the means of production. It’s also institutionalized theft. By any objective measure, the US is one of the most socialist governments in the developed world. The federal government seizes nearly $4 trillion in resources from the people every year. It is $15 trillion in debt. That’s not counting state and local governments. No other country comes close.

What resources US governments don’t seize directly, they control through regulation. In 2010, the Federal Register contained 81,405 pages of regulations. Regulators add thousands of pages every year. DiLorenzo adds, “On top of all of this, state and local governments have literally thousands of regulatory agencies and commissions that regulate everything from allergies to zoos. … Then there’s the [Federal Reserve]. In addition to attempting to fix prices (interest rates) and causing perpetual boom-and-bust cycles with its monetary manipulation, the Fed performs dozens of regulatory functions.” The regulatory functions listed are too numerous to print.

US governments gained control of the means of production by corporatizing every sector of the economy via regulation. They have institutionalized theft on a scale unprecedented in history. This socialism is the root of America’s economic problems.

So why not capitalism? Capitalism is an economy without government intervention. Neither politicians nor producers can use government coercion to loot the people. The only way for producers to profit is to satisfy consumers. They continually innovate or go bankrupt. That’s why everywhere in the world economic freedom increases, the standard of living increases, and everywhere economic freedom decreases, the standard of living decreases. There are no exceptions.

For centuries the US was largely a capitalist country. Taxes and regulations were low. There was no central bank. Capitalism empowered Americans to create the greatest country the world has ever known. Unprecedented capital accumulation during that time is why the US remains relatively wealthy despite a century of socialist advance. But now nearly all production in the US is controlled by the state for the benefit of those in power. Meanwhile, other countries, including China, have moved towards capitalism. As a result, the stagnant US economy is rapidly being overtaken.

But as those early colonists learned, overcoming the instinctual appeal of socialism is nearly impossible. Americans continue to expand the socialist state, and other than those with access to the levers of power, Americans suffer more for it every day,

But it doesn’t have to be that way. We can chose reason over animal instincts. We can choose cooperation over violence. We can choose compassion over barbarism. If the Canadians, Swedes and Chinese can move toward capitalism and enjoy tremendous benefits, Americans can do the same, but better. If America is to return to a trajectory of greatness, Americans must re-adopt capitalism. Now.

Related Posts

So, I read both Marks and Rana’s commentaries on socialism yesterday and I was struck with a major problem here… they’re both talking about two very different types of government that are frequently confused as being the same. Mark attempts to scare away the potentially open minded by beginning with a discussion of communism, termed “hard socialism” here. He uses historical examples to somehow prove that socialism… err… communism leads to moral decay, and it did. But he uses historical references inappropriately to combat a completely different set of ideals set forth in modern socialism. Which as a historian I find to be quite irresponsible. Indentured servitude is not modern socialism, nor is a guaranteed welfare check.

Mark does eventually go on to address the more modern “soft socialist” systems, or democratic socialist systems, like those in Canada and Sweden, that Rana primarily and properly focuses on. But he fails to notice that these countries have not “moved toward capitalism over time” because they’ve never been purely socialist to begin with. What these countries have done right is continually adjust and restructure the balance of providing social welfare in times of need with that of allowing freedom of their own capitalist markets. Both countries have their own stock markets and both continually fluctuate regulation to meet their economic needs. If one economic sector is struggling, give it some room to breathe. Once it recovers, stabilize it with certain types of regulation. It prevents the dramatic highs and lows and drastic income inequality we experience here.

Deregulation made sense in the early 80s when our economy was struggling, however, our refusal to add on regulation during periods of subsequent economic growth has led to the many unfortunate situations we currently face. We as a country have adhered to a policy of rigid deregulation for over 30 years now, creating spikes of growth that culminated in this current mess. What we need is a system of flexibility that recognizes the benefits of continually examining the markets, locating areas where there needs to be growth and others that need to be stabilized. Like Rana I believe what we need is something akin to democratic socialism.

There’s a lot more I’d love to discuss on this topic, the role of the military in our society (why doesn’t Canada have the enemies we do?), health insurance vs. health care (why do we think it’s ok for rich old people to live forever while the poor suffer?), govt provided services, the non-compassionate capitalism currently practiced in the US (worldwide 1 person eats so how many go hungry?), etc… but DCP isn’t paying me like these folks. But when a writer states that “For centuries the US was largely a capitalist country” (last I checked we are just shy of 2.5 centuries) but also says our country has become increasingly socialist for the last 100 years I see some issues of embellishment and misdirection. I mean which are we? A country of centuries old capitalist tradition, or a country that has been both capitalist and socialist for nearly half of our existence… and one that might improve itself by recognizing the honest flexibility of its own station?

I found Mark Luedtke’s interpretation of the past 30 years of US economic policy dangerously creative–perhaps even “deadly”, and his use of historical examples irresponsible and sophist.
Luedtke’s imprecise use of terminology in regards to the “state”, “corporations”, “those in power” etcetera, in addition to his creative use of terms like “regulation” (for example used in place of where, in historical context, one might expect the word “deregulation”; the defining factor of late 20th century US economic policy starting in the 70’s) creates the illusion of a sensible argument against socialism. However, at a closer glance it is a sneaky attempt to revise history.
The definitions of socialism and the socialist state that Luedtke utilizes are either contradictory or vague: first he notes that according to economist Mise “Under socialism all the means of production are the property of the community,” then later equates the socialist state with “a totalitarian group or party”, and further more claims that “socialism is government control of the means of production. It’s also institutionalized theft.”
In regards to “regulation”:
“US governments gained control of the means of production by corporatizing every sector of the economy via regulation. They have institutionalized theft on a scale unprecedented in history. This socialism is the root of America’s economic problems.”
Yet the capitalism he waves nostalgic about, “an economy without government intervention” never existed in the United States. Industries like transportation, communication, and utilities were highly regulated by the state until free-market government’s like the Thatcher and Reagan adopted more laissez-faire policies hoping order to increase prosperity and profits by allowing private companies to do whatever it took maximize their returns. These deregulatory policies continued for three decades, and much of the time created unprecedented economic prosperity–although the sustainability of these policies and their role in the current economic crisis is debatable–what goes up must come down?
Traditionally, the term deregulation, (coined in the early 70’s) signifies the reduction of govt. power w/in an industry and corporatize is to convert a state run enterprise into an independent one-sometimes in stages -thus the “corporatization” of any sector of the economy is a function of DEregulation–that is unless you subscribe to the view that the State=Corporations=The Man, in which case “socialism” might not seem like such a bad alternative.